Teva shares surge on corporate shake-up

Struggling generic drugmaker Teva Pharmaceutical Industries Ltd. announced a slate of new changes Monday, including the departure of three top executives, in an effort to cut costs and move its business onto firmer ground.

Though the Israeli company didn’t specify how much the Monday changes should save it, Bernstein analyst Ronny Gal expects the reorganization to generate $500 million to $700 million of savings, with cuts eventually totaling about $1.3 billion next year.

Teva has been reckoning with lower generic drug prices, generic competition for its own products as well as a substantial debt load. The stock has declined nearly 60% year-to-date, compared with a 16.5% rise in the S&P 500
SPX, +0.64%
and a 19.7% rise in the Dow Jones Industrial Average
DJIA, +0.45%
Teva shares rose 3.6% in Monday trade and nearly 3% early Tuesday.

Under the Monday changes, Teva’s heads of research and development, specialty medicines and generic medicines will be retiring at the end of the year, the company said.

Teva will also reorganize its corporate structure from one based on drug business type to regional divisions, which Gal expects to account for a “very large cost cut.”

The three new units — North America, Europe and Growth Markets — will manage all of Teva’s drugs “with full end-to-end [profit and loss] accountability,” the company said. Some but not all of Teva’s previous business units will be retained. Such functions as legal and human resources will be bundled into “one leaner supporting organizational infrastructure,” the company said.

The departure of Michael Hayden, who has served as Teva’s president of global research and development and chief scientific officer since 2012, suggests that Teva is “largely going to exit innovative R&D,” Gal said, given “the natural inclination of the company, the new head of R&D and the cost pressure they’re now facing.”

Hayden, along with other top executives Rob Koremans and Dipankar Bhattacharjee, will retire from the company at the end of the year, Teva said.

Teva’s new global R&D head will be Executive Vice President Hafrun Fridriksdottir, former president of Teva’s global generics R&D. Mike McClellan, who has previously served as interim chief financial officer, will step into the position full-time. Executives Brendan O’Grady, Richard Daniell and Gianfranco Nazzi will head up the company’s new North America, European and Growth Market units, respectively.

These appointments will likely be received positively by Wall Street and buoy the stock between now and January’s J.P. Morgan conference, Gal said.

However, “I’d like to see those guys execute for a little bit,” Gal said. “Teva, at the end of the day, is the same company. Reorganizations do not drive usually better execution. And I’d like to see them getting their sea legs under them before supporting the company long-term.”

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